Proposals may cut Vodafone’s retro tax liability

In a move likely to soothe frayed nerves of India Inc and its investors, a government panel has proposed that retrospective taxation of corporate deals should be applied in the "rarest of rare" cases, and not as a matter of routine policy.

The draft recommendations of the Parthasarathi Shome panel report on retrospective tax amendments — published on Tuesday — if accepted will likely bring cheer to British telecom giant Vodafone.

The finance ministry had proposed changes in India's tax laws to impose a retrospective provision for tax on some types of international mergers that may include Vodafone's 2007 acquisition of Hutchinson's mobile assets in India.

This was seen as a fallout of Vodafone’s dispute over the Rs. 11,200-crore tax demand with the tax department that the British firm had concluded the Hutchison deal abroad — Cayman Islands — to evade taxes.

In January, the SC had ruled that Vodafone was not liable to pay taxes under prevailing laws.

The Shome panel said the government should not levy any penalty interest in cases where tax demands have been raised following the amendment of tax rules retrospectively in March

“In all cases where demand of tax is raised on account of retrospective amendment relating to indirect transfer...no interest...should be charged in respect of that demand so that there is no undue hardship caused to the tax payer,” the panel said.

Sources said the government is examining the option of waiving off penalties and interest of the tax demand that authorities had slapped on Vodafone.

The telecom giant will have to pay Rs. 8,000 crore tax if penalty and interest are waived off.

The Shome panel has said that retrospective amendment of tax laws should occur in exceptional cases, with particular objectives and apply to matters that are "genuinely clarificatory" in nature.'